BILL NUMBER: AB 530	CHAPTERED  10/10/99

	CHAPTER   644
	FILED WITH SECRETARY OF STATE   OCTOBER 10, 1999
	APPROVED BY GOVERNOR   OCTOBER 5, 1999
	PASSED THE ASSEMBLY   SEPTEMBER 10, 1999
	PASSED THE SENATE   SEPTEMBER 9, 1999
	AMENDED IN SENATE   SEPTEMBER 8, 1999
	AMENDED IN SENATE   SEPTEMBER 7, 1999
	AMENDED IN SENATE   AUGUST 30, 1999
	AMENDED IN ASSEMBLY   MAY 19, 1999

INTRODUCED BY   Assembly Member Papan

                        FEBRUARY 18, 1999

   An act to amend Sections 53601 and 53635 of the Government Code,
relating to local government finance.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 530, Papan.  Local government finance.
   Under existing law, funds that belong to, or are in the custody
of, a local agency or local agency moneys that are not required for
the immediate necessity of the local agency may be invested in any of
several specified investments, including reverse repurchase
agreements.
   This bill would additionally authorize the legislative body of a
local agency to invest the funds in securities lending agreements
subject to the conditions similar to investing funds in reverse
repurchase agreements.
   This bill would incorporate additional changes in Sections 53601
and 53635 of the Government Code proposed by AB 1679, to be operative
if AB 1679 and this bill are both enacted and become effective on or
before January 1, 2000, and this bill is enacted last.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 53601 of the Government Code is amended to
read:
   53601.  The legislative body of a local agency having money in a
sinking fund of, or surplus money in, its treasury not required for
the immediate needs of the local agency may invest any portion of the
money that it deems wise or expedient in those investments set forth
below.  A local agency purchasing or obtaining any securities
prescribed in this section, in a negotiable, bearer, registered, or
nonregistered format, shall require delivery of the securities to the
local agency, including those purchased for the agency by financial
advisers, consultants, or managers using the agency's funds, by book
entry, physical delivery, or by third-party custodial agreement.  The
transfer of securities to the counterparty bank's customer book
entry account may be used for book entry delivery.  For purposes of
this section "counterparty" means the other party to the transaction.
  A counterparty bank's trust department or separate safekeeping
department may be used for the physical delivery of the security if
the security is held in the name of the local agency.  Where this
section specifies a percentage limitation for a particular category
of investment, that percentage is applicable only at the date of
purchase.  Where this section does not specify a limitation on the
term or remaining maturity at the time of the investment, no
investment shall be made in any security, other than a security
underlying a repurchase or reverse repurchase agreement or securities
lending agreement authorized by this section, that at the time of
the investment has a term remaining to maturity in excess of five
years, unless the legislative body has granted express authority to
make that investment either specifically or as a part of an
investment program approved by the legislative body no less than
three months prior to the investment:
   (a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
   (b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
   (c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
   (d) Bonds, notes, warrants, or other evidences of indebtedness of
any local agency within this state, including bonds payable solely
out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency, or by a department,
board, agency, or authority of the local agency.
   (e) Obligations issued by banks for cooperatives, federal land
banks, federal intermediate credit banks, federal home loan banks,
the Federal Home Loan Bank Board, the Tennessee Valley Authority, or
in obligations, participations, or other instruments of, or issued
by, or fully guaranteed as to principal and interest by, the Federal
National Mortgage Association; or in guaranteed portions of Small
Business Administration notes; or in obligations, participations, or
other instruments of, or issued by, a federal agency or a United
States government-sponsored enterprise.
   (f) Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers acceptances.  Purchases
of bankers acceptances may not exceed 270 days maturity or 40 percent
of the agency's surplus money that may be invested pursuant to this
section.  However, no more than 30 percent of the agency's surplus
funds may be invested in the bankers acceptances of any one
commercial bank pursuant to this section.
   This subdivision does not preclude a municipal utility district
from investing any surplus money in its treasury in any manner
authorized by the Municipal Utility District Act (Division 6
(commencing with Section 11501) of the Public Utilities Code).
   (g) Commercial paper of "prime" quality of the highest ranking or
of the highest letter and numerical rating as provided for by Moody's
Investors Service, Inc., or Standard and Poor's Corporation.
Eligible paper is further limited to issuing corporations that are
organized and operating within the United States and having total
assets in excess of five hundred million dollars ($500,000,000) and
having an "A" or higher rating for the issuer's debt, other than
commercial paper, if any, as provided for by Moody's Investors
Service, Inc., or Standard and Poor's Corporation.  Purchases of
eligible commercial paper may not exceed 180 days maturity nor
represent more than 10 percent of the outstanding paper of an issuing
corporation.  Purchases of commercial paper may not exceed 15
percent of the agency's surplus money that may be invested pursuant
to this section.  An additional 15 percent, or a total of 30 percent
of the agency's surplus money, may be invested pursuant to this
subdivision.  The additional 15 percent may be so invested only if
the dollar-weighted average maturity of the entire amount does not
exceed 31 days.  "Dollar-weighted average maturity" means the sum of
the amount of each outstanding commercial paper investment multiplied
by the number of days to maturity, divided by the total amount of
outstanding commercial paper.
   (h) Negotiable certificates of deposits issued by a nationally or
state-chartered bank or a state or federal association (as defined by
Section 5102 of the Financial Code) or by a state-licensed branch of
a foreign bank.  Purchases of negotiable certificates of deposit may
not exceed 30 percent of the agency's surplus money which may be
invested pursuant to this section.  For purposes of this section,
negotiable certificates of deposits do not come within Article 2
(commencing with Section 53630), except that the amount so invested
shall be subject to the limitations of Section 53638.
   (i) (1) Investments in repurchase agreements or reverse repurchase
agreements or securities lending agreements of any securities
authorized by this section, as long as the agreements are subject to
this subdivision, including, the delivery requirements specified in
this section.
   (2) Investments in repurchase agreements may be made, on any
investment authorized in this section, when the term of the agreement
does not exceed one year.  The market value of securities that
underlay a repurchase agreement shall be valued at 102 percent or
greater of the funds borrowed against those securities and the value
shall be adjusted no less than quarterly.  Since the market value of
the underlying securities is subject to daily market fluctuations,
the investments in repurchase agreements shall be in compliance if
the value of the underlying securities is brought back up to 102
percent no later than the next business day.
   (3) Reverse repurchase agreements or securities lending agreements
may be utilized only when either of the following conditions are
met:
   (A) The security was owned or specifically committed to purchase,
by the local agency, prior to December 31, 1994, and was sold using a
reverse repurchase agreement or securities lending agreement on
December 31, 1994.
   (B) The security to be sold on reverse repurchase agreement or
securities lending agreement has been owned and fully paid for by the
local agency for a minimum of 30 days prior to sale; the total of
all reverse repurchase agreements and securities lending agreements
on investments owned by the local agency not purchased or committed
to purchase, prior to December 31, 1994, does not exceed 20 percent
of the base value of the portfolio; and the agreement does not exceed
a term of 92 days, unless the agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period
between the sale of a security using a reverse repurchase agreement
or securities lending agreement and the final maturity date of the
same security.
   (4) After December 31, 1994, a reverse repurchase agreement or
securities lending agreement may not be entered into with securities
not sold on a reverse repurchase agreement or securities lending
agreement and purchased, or committed to purchase, prior to that
date, as a means of financing or paying for the security sold on a
reverse repurchase agreement or securities lending agreement, but may
only be entered into with securities owned and previously paid for a
minimum of 30 days prior to the settlement of the reverse repurchase
agreement or securities lending agreement, in order to supplement
the yield on securities owned and previously paid for or to provide
funds for the immediate payment of a local agency obligation.  Funds
obtained or funds within the pool of an equivalent amount to that
obtained from selling a security to a counterparty by way of a
reverse repurchase agreement or securities lending agreement, on
securities originally purchased subsequent to December 31, 1994,
shall not be used to purchase another security with a maturity longer
than 92 days from the initial settlement date of the reverse
repurchase agreement or securities lending agreement, unless the
reverse repurchase agreement or securities lending agreement includes
a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse
repurchase agreement or securities lending agreement and the final
maturity date of the same security.  Reverse repurchase agreements or
securities lending agreements specified in subparagraph (B) of
paragraph (3) may not be entered into unless the percentage
restrictions specified in that subparagraph are met, including the
total of any reverse repurchase agreements or securities lending
agreements specified in subparagraph (A) of paragraph (3).
   (5) Investments in reverse repurchase agreements, securities
lending agreements, or similar investments in which the local agency
sells securities prior to purchase with a simultaneous agreement to
repurchase the security, may only be made upon prior approval of the
governing body of the local agency and shall only be made with
primary dealers of the Federal Reserve Bank of New York.
   (6) (A) "Repurchase agreement" means a purchase of securities by
the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date
and for a specified amount and the counterparty will deliver the
underlying securities to the local agency by book entry, physical
delivery, or by third party custodial agreement.  The transfer of
underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery.
   (B) "Securities," for purpose of repurchase under this
subdivision, means securities of the same issuer, description, issue
date, and maturity.
   (C) "Reverse repurchase agreement" means a sale of securities by
the local agency pursuant to an agreement by which the local agency
will repurchase the securities on or before a specified date and
includes other comparable agreements.
   (D) "Securities lending agreement" means an agreement under which
a local agency agrees to transfer securities to a borrower who, in
turn, agrees to provide collateral to the local agency.  During the
term of the agreement, both the securities and the collateral are
held by a third party.  At the conclusion of the agreement, the
securities are transferred back to the local agency in return for the
collateral.
   (E) For purposes of this section, the base value of the local
agency's pool portfolio shall be that dollar amount obtained by
totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements, securities
lending agreements, or other similar borrowing methods.
   (F) For purposes of this section, the spread is the difference
between the cost of funds obtained using the reverse repurchase
agreement or securities lending agreement and the earnings obtained
on the reinvestment of the funds.
   (j) Medium-term notes of a maximum of five years maturity issued
by corporations organized and operating within the United States or
by depository institutions licensed by the United States or any state
and operating within the United States.  Notes eligible for
investment under this subdivision shall be rated in a rating category
of "A" or its equivalent or better by a nationally recognized rating
service.  Purchases of medium-term notes may not exceed 30 percent
of the agency's surplus money which may be invested pursuant to this
section.
   (k) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (j), inclusive, or subdivisions
(m) or (n) and that comply with the investment restrictions of this
article and Article 2 (commencing with Section 53630).  However,
notwithstanding these restrictions, a counterparty to a reverse
repurchase agreement or securities lending agreement is not required
to be a primary dealer of the Federal Reserve Bank of New York if the
company's board of directors finds that the counterparty presents a
minimal risk of default, and the value of the securities underlying a
repurchase agreement or securities lending agreement may be 100
percent of the sales price if the securities are marked to market
daily.
   (2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec.  80a-1 and following).
   (3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (j), inclusive, or
subdivisions (m) or (n) and with assets under management in excess of
five hundred million dollars ($500,000,000).
   (4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
   (5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include any commission that
the companies may charge and shall not exceed 20 percent of the
agency's surplus money that may be invested pursuant to this section.
  However, no more than 10 percent of the agency's surplus funds may
be invested in shares of beneficial interest of any one mutual fund
pursuant to paragraph (1).
   (l) Notwithstanding anything to the contrary contained in this
section, Section 53635, or any other provision of law, moneys held by
a trustee or fiscal agent and pledged to the payment or security of
bonds or other indebtedness, or obligations under a lease,
installment sale, or other agreement of a local agency, or
certificates of participation in those bonds, indebtedness, or lease
installment sale, or other agreements, may be invested in accordance
with the statutory provisions governing the issuance of those bonds,
indebtedness, or lease installment sale, or other agreement, or to
the extent not inconsistent therewith or if there are no specific
statutory provisions, in accordance with the ordinance, resolution,
indenture, or agreement of the local agency providing for the
issuance.
   (m) Notes, bonds, or other obligations that are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits.  The securities serving as collateral
shall be placed by delivery or book entry into the custody of a
trust company or the trust department of a bank which is not
affiliated with the issuer of the secured obligation, and the
security interest shall be perfected in accordance with the
requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest
is granted.
   (n) Any mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years maturity.  Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by a nationally recognized
rating service and rated in a rating category of "AA" or its
equivalent or better by a nationally recognized rating service.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus money that may be invested
pursuant to this section.
  SEC. 1.5.  Section 53601 of the Government Code is amended to read:

   53601.  The legislative body of a local agency having money in a
sinking fund of, or surplus money in, its treasury not required for
the immediate needs of the local agency may invest any portion of the
money that it deems wise or expedient in those investments set forth
below.  A local agency purchasing or obtaining any securities
prescribed in this section, in a negotiable, bearer, registered, or
nonregistered format, shall require delivery of the securities to the
local agency, including those purchased for the agency by financial
advisers, consultants, or managers using the agency's funds, by book
entry, physical delivery, or by third-party custodial agreement.
The transfer of securities to the counterparty bank's customer book
entry account may be used for book entry delivery.  For purposes of
this section "counterparty" means the other party to the transaction.
  A counterparty bank's trust department or separate safekeeping
department may be used for the physical delivery of the security if
the security is held in the name of the local agency.  Where this
section specifies a percentage limitation for a particular category
of investment, that percentage is applicable only at the date of
purchase.  Where this section does not specify a limitation on the
term or remaining maturity at the time of the investment, no
investment shall be made in any security, other than a security
underlying a repurchase or reverse repurchase agreement or securities
lending agreement authorized by this section, that at the time of
the investment has a term remaining to maturity in excess of five
years, unless the legislative body has granted express authority to
make that investment either specifically or as a part of an
investment program approved by the legislative body no less than
three months prior to the investment:
   (a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
   (b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
   (c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
   (d) Bonds, notes, warrants, or other evidences of indebtedness of
any local agency within this state, including bonds payable solely
out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency, or by a department,
board, agency, or authority of the local agency.
   (e) Obligations issued by banks for cooperatives, federal land
banks, federal intermediate credit banks, federal home loan banks,
the Federal Home Loan Bank Board, the Tennessee Valley Authority, or
in obligations, participations, or other instruments of, or issued
by, or fully guaranteed as to principal and interest by, the Federal
National Mortgage Association; or in guaranteed portions of Small
Business Administration notes; or in obligations, participations, or
other instruments of, or issued by, a federal agency or a United
States government-sponsored enterprise.
   (f) Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers acceptances.  Purchases
of bankers acceptances may not exceed 270 days maturity or 40 percent
of the agency's surplus money that may be invested pursuant to this
section.  However, no more than 30 percent of the agency's surplus
funds may be invested in the bankers acceptances of any one
commercial bank pursuant to this section.
   This subdivision does not preclude a municipal utility district
from investing any surplus money in its treasury in any manner
authorized by the Municipal Utility District Act (Division 6
(commencing with Section 11501) of the Public Utilities Code).
   (g) Commercial paper of "prime" quality of the highest ranking or
of the highest letter and numerical rating as provided for by Moody's
Investors Service, Inc., or Standard and Poor's Corporation.
Eligible paper is further limited to issuing corporations that are
organized and operating within the United States and having total
assets in excess of five hundred million dollars ($500,000,000) and
having an "A" or higher rating for the issuer's debt, other than
commercial paper, if any, as provided for by Moody's Investors
Service, Inc., or Standard and Poor's Corporation.  Purchases of
eligible commercial paper may not exceed 180 days maturity nor
represent more than 10 percent of the outstanding paper of an issuing
corporation.  Purchases of commercial paper may not exceed 15
percent of the agency's surplus money that may be invested pursuant
to this section.  An additional 15 percent, or a total of 30 percent
of the agency's surplus money, may be invested pursuant to this
subdivision.  The additional 15 percent may be so invested only if
the dollar-weighted average maturity of the entire amount does not
exceed 31 days.  "Dollar-weighted average maturity" means the sum of
the amount of each outstanding commercial paper investment multiplied
by the number of days to maturity, divided by the total amount of
outstanding commercial paper.
   (h) Negotiable certificates of deposits issued by a nationally or
state-chartered bank or a state or federal association (as defined by
Section 5102 of the Financial Code) or by a state-licensed branch of
a foreign bank.  Purchases of negotiable certificates of deposit may
not exceed 30 percent of the agency's surplus money which may be
invested pursuant to this section.  For purposes of this section,
negotiable certificates of deposits do not come within Article 2
(commencing with Section 53630), except that the amount so invested
shall be subject to the limitations of Section 53638.
   (i) (1) Investments in repurchase agreements or reverse repurchase
agreements or securities lending agreements of any securities
authorized by this section, as long as the agreements are subject to
this subdivision, including, the delivery requirements specified in
this section.
   (2) Investments in repurchase agreements may be made, on any
investment authorized in this section, when the term of the agreement
does not exceed one year.  The market value of securities that
underlay a repurchase agreement shall be valued at 102 percent or
greater of the funds borrowed against those securities and the value
shall be adjusted no less than quarterly.  Since the market value of
the underlying securities is subject to daily market fluctuations,
the investments in repurchase agreements shall be in compliance if
the value of the underlying securities is brought back up to 102
percent no later than the next business day.
   (3) Reverse repurchase agreements or securities lending agreements
may be utilized only when either of the following conditions are
met:
   (A) The security was owned or specifically committed to purchase,
by the local agency, prior to December 31, 1994, and was sold using a
reverse repurchase agreement  or securities lending agreement on
December 31, 1994.
   (B) The security to be sold on reverse repurchase agreement or
securities lending agreement has been owned and fully paid for by the
local agency for a minimum of 30 days prior to sale; the total of
all reverse repurchase agreements and securities lending agreements
on investments owned by the local agency not purchased or committed
to purchase, prior to December 31, 1994, does not exceed 20 percent
of the base value of the portfolio; and the agreement does not exceed
a term of 92 days, unless the agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period
between the sale of a security using a reverse repurchase agreement
or securities lending agreement and the final maturity date of the
same security.
   (4) After December 31, 1994, a reverse repurchase agreement or
securities lending agreement may not be entered into with securities
not sold on a reverse repurchase agreement or securities lending
agreement and purchased, or committed to purchase, prior to that
date, as a means of financing or paying for the security sold on a
reverse repurchase agreement or securities lending agreement, but may
only be entered into with securities owned and previously paid for a
minimum of 30 days prior to the settlement of the reverse repurchase
agreement or securities lending agreement, in order to supplement
the yield on securities owned and previously paid for or to provide
funds for the
immediate payment of a local agency obligation.  Funds obtained or
funds within the pool of an equivalent amount to that obtained from
selling a security to a counterparty by way of a reverse repurchase
agreement or securities lending agreement, on securities originally
purchased subsequent to December 31, 1994, shall not be used to
purchase another security with a maturity longer than 92 days from
the initial settlement date of the reverse repurchase agreement or
securities lending agreement, unless the reverse repurchase agreement
or securities lending agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period
between the sale of a security using a reverse repurchase agreement
or securities lending agreement and the final maturity date of the
same security.  Reverse repurchase agreements or securities lending
agreements specified in subparagraph (B) of paragraph (3) may not be
entered into unless the percentage restrictions specified in that
subparagraph are met, including the total of any reverse repurchase
agreements or securities lending agreements specified in subparagraph
(A) of paragraph (3).
   (5) Investments in reverse repurchase agreements, securities
lending agreements, or similar investments in which the local agency
sells securities prior to purchase with a simultaneous agreement to
repurchase the security, may only be made upon prior approval of the
governing body of the local agency and shall only be made with
primary dealers of the Federal Reserve Bank of New York.
   (6) (A) "Repurchase agreement" means a purchase of securities by
the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date
and for a specified amount and the counterparty will deliver the
underlying securities to the local agency by book entry, physical
delivery, or by third-party custodial agreement.  The transfer of
underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery.
   (B) "Securities," for purpose of repurchase under this
subdivision, means securities of the same issuer, description, issue
date, and maturity.
   (C) "Reverse repurchase agreement" means a sale of securities by
the local agency pursuant to an agreement by which the local agency
will repurchase the securities on or before a specified date and
includes other comparable agreements.
   (D) "Securities lending agreement" means an agreement under which
a local agency agrees to transfer securities to a borrower who, in
turn, agrees to provide collateral to the local agency.  During the
term of the agreement, both the securities and the collateral are
held by a third party.  At the conclusion of the agreement, the
securities are transferred back to the local agency in return for the
collateral.
   (E) For purposes of this section, the base value of the local
agency's pool portfolio shall be that dollar amount obtained by
totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements, securities
lending agreements, or other similar borrowing methods.
   (F) For purposes of this section, the spread is the difference
between the cost of funds obtained using the reverse repurchase
agreement and the earnings obtained on the reinvestment of the funds.

   (j) Medium-term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five
years  or less, issued by corporations organized and operating
within the United States or by depository institutions licensed by
the United States or any state and operating within the United
States.  Notes eligible for investment under this subdivision shall
be rated "A" or better by a nationally recognized rating service.
Purchases of medium-term notes shall not include other instruments
authorized by this section and may not exceed 30 percent of the
agency's surplus money which may be invested pursuant to this
section.
   (k) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (j), inclusive, or subdivisions
(m) or (n) and that comply with the investment restrictions of this
article and Article 2 (commencing with Section 53630).  However,
notwithstanding these restrictions, a counterparty to a reverse
repurchase agreement or securities lending agreement is not required
to be a primary dealer of the Federal Reserve Bank of New York if the
company's board of directors finds that the counterparty presents a
minimal risk of default, and the value of the securities underlying a
repurchase agreement or securities lending agreement may be 100
percent of the sales price if the securities are marked to market
daily.
   (2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec.  80a-1 and following).
   (3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (j), inclusive, or
subdivisions (m) or (n) and with assets under management in excess of
five hundred million dollars ($500,000,000).
   (4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
   (5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include any commission that
the companies may charge and shall not exceed 20 percent of the
agency's surplus money that may be invested pursuant to this section.
  However, no more than 10 percent of the agency's surplus funds may
be invested in shares of beneficial interest of any one mutual fund
pursuant to paragraph (1).
   (l) Notwithstanding anything to the contrary contained in this
section, Section 53635, or any other provision of law, moneys held by
a trustee or fiscal agent and pledged to the payment or security of
bonds or other indebtedness, or obligations under a lease,
installment sale, or other agreement of a local agency, or
certificates of participation in those bonds, indebtedness, or lease
installment sale, or other agreements, may be invested in accordance
with the statutory provisions governing the issuance of those bonds,
indebtedness, or lease installment sale, or other agreement, or to
the extent not inconsistent therewith or if there are no specific
statutory provisions, in accordance with the ordinance, resolution,
indenture, or agreement of the local agency providing for the
issuance.
   (m) Notes, bonds, or other obligations that are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits.  The securities serving as collateral
shall be placed by delivery or book entry into the custody of a
trust company or the trust department of a bank which is not
affiliated with the issuer of the secured obligation, and the
security interest shall be perfected in accordance with the
requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest
is granted.
   (n) Any mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years maturity.  Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by a nationally recognized
rating service and rated in a rating category of "AA" or its
equivalent or better by a nationally recognized rating service.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus money that may be invested
pursuant to this section.
  SEC. 2.  Section 53635 of the Government Code is amended to read:
   53635.  As far as possible, all money belonging to, or in the
custody of, a local agency, including money paid to the treasurer or
other official to pay the principal, interest, or penalties of bonds,
shall be deposited for safekeeping in state or national banks,
savings associations or federal associations, credit unions, or
federally insured industrial loan companies in this state selected by
the treasurer or other official having the legal custody of the
money; or, unless otherwise directed by the legislative body pursuant
to Section 53601, may be invested in the investments set forth
below.  A local agency purchasing or obtaining any securities
described in this section, in a negotiable, bearer, registered, or
nonregistered format, shall require delivery of all the securities to
the local agency, including those purchased for the agency by
financial advisers, consultants, or managers using the agency's
funds, by book entry, physical delivery, or by third-party custodial
agreement.  The transfer of securities to the counterparty bank's
customer book entry account may be used for book-entry delivery.  For
purposes of this section, "counterparty" means the other party to
the transaction.  A counterparty bank's trust department or separate
safekeeping department may be used for the physical delivery of the
security if the security is held in the name of the local agency.
Where this section specifies a percentage limitation for a particular
category of investment, that percentage is applicable only at the
date of purchase.
   (a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
   (b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
   (c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
   (d) Bonds, notes, warrants, or other evidences of indebtedness of
any local agency within this state, including bonds payable solely
out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency, or by a department,
board, agency, or authority of the local agency.
   (e) Obligations issued by banks for cooperatives, federal land
banks, federal intermediate credit banks, federal home loan banks,
the Federal Home Loan Bank, the Tennessee Valley Authority, or in
obligations, participations, or other instruments of, or issued by,
or fully guaranteed as to principal and interest by, the Federal
National Mortgage Association; or in guaranteed portions of Small
Business Administration notes; or in obligations, participations, or
other instruments of, or issued by, a federal agency or a United
States government-sponsored enterprise.
   (f) Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers acceptances.  Purchases
of bankers acceptances may not exceed 270 days maturity or 40 percent
of the agency's surplus funds which may be invested pursuant to this
section.  However, no more than 30 percent of the agency's surplus
funds may be invested in the bankers acceptances of any one
commercial bank pursuant to this section.
   This subdivision does not preclude a municipal utility district
from investing any surplus money in its treasury in any manner
authorized by the Municipal Utility District Act, Division 6
(commencing with Section 11501) of the Public Utilities Code.
   (g) Commercial paper of "prime" quality of the highest ranking or
of the highest letter and numerical rating as provided for by Moody's
Investors Service, Inc., or Standard and Poor's Corporation.
Eligible paper is further limited to issuing corporations that are
organized and operating within the United States and having total
assets in excess of five hundred million dollars ($500,000,000) and
having an "A" or higher rating for the issuer's debt, other than
commercial paper, if any, as provided for by Moody's Investors
Service, Inc., or Standard and Poor's Corporation.  Purchases of
eligible commercial paper may not exceed 180 days maturity nor
represent more than 10 percent of the outstanding paper of an issuing
corporation.  Purchases of commercial paper may not exceed 15
percent of the agency's surplus money which may be invested pursuant
to this section.  An additional 15 percent, or a total of 30 percent
of the agency's money or money in its custody, may be invested
pursuant to this subdivision.  The additional 15 percent may be so
invested only if the dollar-weighted average maturity of the entire
amount does not exceed 31 days.  "Dollar-weighted average maturity"
means the sum of the amount of each outstanding commercial paper
investment multiplied by the number of days to maturity, divided by
the total amount of outstanding commercial paper.
   (h) Negotiable certificates of deposit issued by a nationally or
state-chartered bank or a savings association or federal association
or a state or federal credit union or by a state-licensed branch of a
foreign bank.  Purchases of negotiable certificates of deposit may
not exceed 30 percent of the agency's surplus money which may be
invested pursuant to this section.  For purposes of this section,
negotiable certificates of deposit do not come within Article 2
(commencing with Section 53630) of Chapter 4 of Part 1 of Division 2
of Title 5, except that the amount so invested shall be subject to
the limitations of Section 53638.  For purposes of this section, the
legislative body of a local agency and the treasurer or other
official of the local agency having legal custody of the money are
prohibited from depositing or investing local agency funds, or funds
in the custody of the local agency, in negotiable certificates of
deposit issued by a state or federal credit union if a member of the
legislative body of the local agency, or an employee of the
administrative officer, manager's office, budget office,
auditor-controller's office, or treasurer's office of the local
agency also serves on the board of directors, or any committee
appointed by the board of directors, or the credit committee or
supervisory committee of the state or federal credit union issuing
the negotiable certificates of deposit.
   (i) (1) Investments in repurchase agreements, reverse repurchase
agreements, or securities lending agreements of any securities
authorized by this section, so long as the agreements are subject to
this subdivision, including the delivery requirements specified in
this section.
   (2) Investments in repurchase agreements may be made, on any
investment authorized in this section, when the term of the agreement
does not exceed one year.  The market value of securities that
underlay a repurchase agreement shall be valued at 102 percent or
greater of the funds borrowed against those securities and the value
shall be adjusted no less than quarterly.  Since the market value of
the underlying securities is subject to daily market fluctuations,
the investments in repurchase agreements shall be in compliance if
the value of the underlying securities is brought back up to 102
percent no later than the next business day.
   (3) Reverse repurchase agreements or securities lending agreements
may be utilized only when either of the following conditions are
met:
   (A) The security was owned or specifically committed to purchase,
by the local agency, prior to repurchase agreement on December 31,
1994, and was sold using a reverse repurchase agreement or securities
lending agreement on December 31, 1994.
   (B) The security to be sold on reverse repurchase agreement or
securities lending agreement has been owned and fully paid for by the
local agency for a minimum of 30 days prior to sale, the total of
all reverse repurchase agreements and securities lending agreements
on investments owned by the local agency not purchased or committed
to purchase, prior to December 31, 1994, does not exceed 20 percent
of the base value of the portfolio, and the agreement does not exceed
a term of 92 days, unless the agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period
between the sale of a security using a reverse repurchase agreement
or securities lending agreement and the final maturity date of the
same security.
   (4) After December 31, 1994, a reverse repurchase agreement or
securities lending agreement may not be entered into with securities
not sold on a reverse repurchase agreement or securities lending
agreement and purchased, or committed to purchase, prior to that
date, as a means of financing or paying for the security sold on a
reverse repurchase agreement or securities lending agreement, but may
only be entered into with securities owned and previously paid for,
for a minimum of 30 days prior to the settlement of the reverse
repurchase agreement or securities lending agreement, in order to
supplement the yield on securities owned and previously paid for or
to provide funds for the immediate payment of a local agency
obligation.  Funds obtained or funds within the pool of an equivalent
amount to that obtained from selling a security to a counterparty by
way of a reverse repurchase agreement or securities lending
agreement, on securities originally purchased subsequent to December
31, 1994, shall not be used to purchase another security with a
maturity longer than 92 days from the initial settlement date of the
reverse repurchase agreement or securities lending agreement, unless
the reverse repurchase agreement or securities lending agreement
includes a written codicil guaranteeing a minimum earning or spread
for the entire period between the sale of a security using a reverse
repurchase agreement or securities lending agreement and the final
maturity date of the same security.  Reverse repurchase agreements or
securities lending agreements specified in subparagraph (B) of
paragraph (3) may not be entered into unless the percentage
restrictions specified in that subparagraph are met, including the
total of any reverse repurchase agreements or securities lending
agreements specified in subparagraph (A) of paragraph (3).
   (5) Investments in reverse repurchase agreements, securities
lending agreements, or similar investments in which the local agency
sells securities prior to purchase with a simultaneous agreement to
repurchase the security, may only be made upon prior approval of the
governing body of the local agency and shall only be made with
primary dealers of the Federal Reserve Bank of New York.
   (6) (A) "Repurchase agreement" means a purchase of securities by
the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date
and for a specified amount and the counterparty will deliver the
underlying securities to the local agency by book entry, physical
delivery, or by third-party custodial agreement.  The transfer of
underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery.
   (B) "Securities," for purpose of repurchase under this
subdivision, means securities of the same issuer, description, issue
date, and maturity.
   (C) "Reverse repurchase agreement" means a sale of securities by
the local agency pursuant to an agreement by which the local agency
will repurchase the securities on or before a specified date, and
includes other comparable agreements.
   (D) "Securities lending agreement" means an agreement under which
a local agency agrees to transfer securities to a borrower who, in
turn, agrees to provide collateral to the local agency.  During the
term of the agreement, both the securities and the collateral are
held by a third party.  At the conclusion of the agreement, the
securities are transferred back to the local agency in return for the
collateral.
   (E) For purposes of this section, the base value of the local
agency's pool portfolio shall be that dollar amount obtained by
totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements or other similar
borrowing methods.
   (F) For purposes of this section, the spread is the difference
between the cost of funds obtained using the reverse repurchase
agreement or securities lending agreement and the earnings obtained
on the reinvestment of the funds.
   (j) Medium-term notes of a maximum of five years' maturity issued
by corporations organized and operating within the United States or
by depository institutions licensed by the United States or any state
and operating within the United States.  Notes eligible for
investment under this subdivision shall be rated in a rating category
of "A" or its equivalent or better by a nationally recognized rating
service.  Purchases of medium-term notes may not exceed 30 percent
of the agency's surplus money which may be invested pursuant to this
section.
   (k) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (j), inclusive, or subdivision (l)
or (m) and that comply with the investment restrictions of this
article and Article 1 (commencing with Section 53600).  However,
notwithstanding these restrictions, a counterparty to a reverse
repurchase agreement or securities lending agreement is not required
to be a primary dealer of the Federal Reserve Bank of New York if the
company's board of directors finds that the counterparty presents a
minimal risk of default, and the value of the securities underlying a
repurchase agreement or securities lending agreement may be 100
percent of the sales price if the securities are marked to market
daily.
   (2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec.  80a-1 and following).
   (3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (j), inclusive, or
subdivision (l) or (m) and with assets under management in excess of
five hundred million dollars ($500,000,000).
   (4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
   (5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include any commission that
the companies may charge and shall not exceed 20 percent of the
agency's surplus money that may be invested pursuant to this section.
  However, no more than 10 percent of the agency's surplus funds may
be invested in shares of beneficial interest of any one mutual fund
pursuant to paragraph (1).
   (l) Notes, bonds, or other obligations which are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits.  The securities serving as collateral
shall be placed by delivery or book entry into the custody of a
trust company or the trust department of a bank which is not
affiliated with the issuer of the secured obligation, and the
security interest shall be perfected in accordance with the
requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest
is granted.
   (m) Any mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years maturity.  Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by a nationally recognized
rating service and rated in a rating category of "AA" or its
equivalent or better by a nationally recognized rating service.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus money that may be invested
pursuant to this
section.
  SEC. 2.5.  Section 53635 of the Government Code is amended to read:

   53635.  As far as possible, all money belonging to, or in the
custody of, a local agency, including money paid to the treasurer or
other official to pay the principal, interest, or penalties of bonds,
shall be deposited for safekeeping in state or national banks,
savings associations or federal associations, credit unions, or
federally insured industrial loan companies in this state selected by
the treasurer or other official having the legal custody of the
money; or, unless otherwise directed by the legislative body pursuant
to Section 53601, may be invested in the investments set forth
below.  A local agency purchasing or obtaining any securities
described in this section, in a negotiable, bearer, registered, or
nonregistered format, shall require delivery of all the securities to
the local agency, including those purchased for the agency by
financial  advisers, consultants, or managers using the agency's
funds, by  book-entry, physical delivery, or by third-party custodial
agreement.  The transfer of securities to the counterparty bank's
customer book entry account may be used for book-entry delivery.  For
purposes of this section, "counterparty" means the other party to
the transaction.  A counterparty bank's trust department or separate
safekeeping department may be used for the physical delivery of the
security if the security is held in the name of the local agency.
Where this section specifies a percentage limitation for a particular
category of investment, that percentage is applicable only at the
date of purchase.
   (a) Bonds issued by the local agency, including bonds payable
solely out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency or by a department,
board, agency, or authority of the local agency.
   (b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United
States are pledged for the payment of principal and interest.
   (c) Registered state warrants or treasury notes or bonds of this
state, including bonds payable solely out of the revenues from a
revenue-producing property owned, controlled, or operated by the
state or by a department, board, agency, or authority of the state.
   (d) Bonds, notes, warrants, or other evidences of indebtedness of
any local agency within this state, including bonds payable solely
out of the revenues from a revenue-producing property owned,
controlled, or operated by the local agency, or by a department,
board, agency, or authority of the local agency.
   (e) Obligations issued by banks for cooperatives, federal land
banks, federal intermediate credit banks, federal home loan banks,
the Federal Home Loan Bank, the Tennessee Valley Authority, or in
obligations, participations, or other instruments of, or issued by,
or fully guaranteed as to principal and interest by, the Federal
National Mortgage Association; or in guaranteed portions of Small
Business Administration notes; or in obligations, participations, or
other instruments of, or issued by, a federal agency or a United
States government-sponsored enterprise.
   (f) Bills of exchange or time drafts drawn on and accepted by a
commercial bank, otherwise known as bankers acceptances.  Purchases
of bankers acceptances may not exceed 270 days maturity or 40 percent
of the agency's surplus funds which may be invested pursuant to this
section.  However, no more than 30 percent of the agency's surplus
funds may be invested in the bankers acceptances of any one
commercial bank pursuant to this section.
   This subdivision does not preclude a municipal utility district
from investing any surplus money in its treasury in any manner
authorized by the Municipal Utility District Act, Division 6
(commencing with Section 11501) of the Public Utilities Code.
   (g) Commercial paper of "prime" quality of the highest ranking or
of the highest letter and numerical rating as provided for by Moody's
Investors Service, Inc., or Standard and Poor's Corporation.
Eligible paper is further limited to issuing corporations that are
organized and operating within the United States and having total
assets in excess of five hundred million dollars ($500,000,000) and
having an "A" or higher rating for the issuer's debt, other than
commercial paper, if any, as provided for by Moody's Investors
Service, Inc., or Standard and Poor's Corporation.  Purchases of
eligible commercial paper may not exceed 180 days maturity nor
represent more than 10 percent of the outstanding paper of an issuing
corporation.  Purchases of commercial paper may not exceed 15
percent of the agency's surplus money which may be invested pursuant
to this section.  An additional 15 percent, or a total of 30 percent
of the agency's money or money in its custody, may be invested
pursuant to this subdivision.  The additional 15 percent may be so
invested only if the dollar-weighted average maturity of the entire
amount does not exceed 31 days.  "Dollar-weighted average maturity"
means the sum of the amount of each outstanding commercial paper
investment multiplied by the number of days to maturity, divided by
the total amount of outstanding commercial paper.
   (h) Negotiable certificates of deposit issued by a nationally or
state-chartered bank or a savings association or federal association
or a state or federal credit union or by a state-licensed branch of a
foreign bank.  Purchases of negotiable certificates of deposit may
not exceed 30 percent of the agency's surplus money which may be
invested pursuant to this section.  For purposes of this section,
negotiable certificates of deposit do not come within Article 2
(commencing with Section 53630) of Chapter 4 of Part 1 of Division 2
of Title 5, except that the amount so invested shall be subject to
the limitations of Section 53638.  For purposes of this section, the
legislative body of a local agency and the treasurer or other
official of the local agency having legal custody of the money are
prohibited from depositing or investing local agency funds, or funds
in the custody of the local agency, in negotiable certificates of
deposit issued by a state or federal credit union if a member of the
legislative body of the local agency, or an employee of the
administrative officer, manager's office, budget office,
auditor-controller's office, or treasurer's office of the local
agency also serves on the board of directors, or any committee
appointed by the board of directors, or the credit committee or
supervisory committee of the state or federal credit union issuing
the negotiable certificates of deposit.
   (i) (1) Investments in repurchase agreements or reverse repurchase
agreements, or securities lending agreements of any securities
authorized by this section, so long as the agreements are subject to
this subdivision, including the delivery requirements specified in
this section.
   (2) Investments in repurchase agreements or securities lending
agreements may be made, on any investment authorized in this section,
when the term of the agreement does not exceed one year.  The market
value of securities that underlay a repurchase agreement shall be
valued at 102 percent or greater of the funds borrowed against those
securities and the value shall be adjusted no less than quarterly.
Since the market value of the underlying securities is subject to
daily market fluctuations, the investments in repurchase agreements
shall be in compliance if the value of the underlying securities is
brought back up to 102 percent no later than the next business day.
   (3) Reverse repurchase agreements may be utilized only when either
of the following conditions are met:
   (A) The security was owned or specifically committed to purchase,
by the local agency, prior to repurchase agreement on December 31,
1994, and was sold using a reverse repurchase agreement  or
securities lending agreement on December 31, 1994.
   (B) The security to be sold on reverse repurchase agreement or
securities lending agreement has been owned and fully paid for by the
local agency for a minimum of 30 days prior to sale; the total of
all reverse repurchase agreements and securities lending agreements
on investments owned by the local agency not purchased or committed
to purchase, prior to December 31, 1994, does not exceed 20 percent
of the base value of the portfolio; and the agreement does not exceed
a term of 92 days, unless the agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period
between the sale of a security using a reverse repurchase agreement
or securities lending agreement and the final maturity date of the
same security.
   (4) After December 31, 1994, a reverse repurchase agreement or
securities lending agreement may not be entered into with securities
not sold on a reverse repurchase agreement or securities lending
agreement and purchased, or committed to purchase, prior to that
date, as a means of financing or paying for the security sold on a
reverse repurchase agreement or securities lending agreement, but may
only be entered into with securities owned and previously paid for a
minimum of 30 days prior to the settlement of the reverse repurchase
agreement or securities lending agreement, in order to supplement
the yield on securities owned and previously paid for or to provide
funds for the immediate payment of a local agency obligation.  Funds
obtained or funds within the pool of an equivalent amount to that
obtained from selling a security to a counterparty by way of a
reverse repurchase agreement or securities lending agreement, on
securities originally purchased subsequent to December 31, 1994,
shall not be used to purchase another security with a maturity longer
than 92 days from the initial settlement date of the reverse
repurchase agreement or securities lending agreement, unless the
reverse repurchase agreement or securities lending agreement includes
a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse
repurchase agreement or securities lending agreement and the final
maturity date of the same security.  Reverse repurchase agreements or
securities lending agreements specified in subparagraph (B) of
paragraph (3) may not be entered into unless the percentage
restrictions specified in that subparagraph are met, including the
total of any reverse repurchase agreements or securities lending
agreements specified in subparagraph (A) of paragraph (3).
   (5) Investments in reverse repurchase agreements, securities
lending agreements, or similar investments in which the local agency
sells securities prior to purchase with a simultaneous agreement to
repurchase the security, may only be made upon prior approval of the
governing body of the local agency and shall only be made with
primary dealers of the Federal Reserve Bank of New York.
   (6) (A) "Repurchase agreement" means a purchase of securities by
the local agency pursuant to an agreement by which the counterparty
seller will repurchase the securities on or before a specified date
and for a specified amount and the counterparty will deliver the
underlying securities to the local agency by book entry, physical
delivery, or by third-party custodial agreement.  The transfer of
underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery.
   (B) "Securities," for purpose of repurchase under this
subdivision, means securities of the same issuer, description, issue
date, and maturity.
   (C) "Reverse repurchase agreement" means a sale of securities by
the local agency pursuant to an agreement by which the local agency
will repurchase the securities on or before a specified date, and
includes other comparable agreements.
   (D) "Securities lending agreement" means an agreement under which
a local agency agrees to transfer securities to a borrower who, in
turn, agrees to provide collateral to the local agency.  During the
term of the agreement, both the securities and the collateral are
held by a third party.  At the conclusion of the agreement, the
securities are transferred back to the local agency in return for the
collateral.
   (E) For purposes of this section, the base value of the local
agency's pool portfolio shall be that dollar amount obtained by
totaling all cash balances placed in the pool by all pool
participants, excluding any amounts obtained through selling
securities by way of reverse repurchase agreements or other similar
borrowing methods.
   (F) For purposes of this section, the spread is the difference
between the cost of funds obtained using the reverse repurchase
agreement or securities lending agreement and the earnings obtained
on the reinvestment of the funds.
   (j) Medium-term notes, defined as all corporate and depository
institution debt securities with a maximum remaining maturity of five
years or less, issued by corporations organized and operating within
the United States or by depository institutions licensed by the
United States or any state and operating within the United States.
Notes eligible for investment under this subdivision shall be rated
"A" or better by a nationally recognized rating service.  Purchases
of medium-term notes shall not include other instruments authorized
by this section and may not exceed 30 percent of the agency's surplus
money which may be invested pursuant to this section.
   (k) (1) Shares of beneficial interest issued by diversified
management companies that invest in the securities and obligations as
authorized by subdivisions (a) to (j), inclusive, or subdivision (l)
or (m) and that comply with the investment restrictions of this
article and Article 1 (commencing with Section 53600).  However,
notwithstanding these restrictions, a counterparty to a reverse
repurchase agreement or securities lending agreement is not required
to be a primary dealer of the Federal Reserve Bank of New York if the
company's board of directors finds that the counterparty presents a
minimal risk of default, and the value of the securities underlying a
repurchase agreement or securities lending agreement may be 100
percent of the sales price if the securities are marked to market
daily.
   (2) Shares of beneficial interest issued by diversified management
companies that are money market funds registered with the Securities
and Exchange Commission under the Investment Company Act of 1940 (15
U.S.C. Sec.  80a-1  and following).
   (3) If investment is in shares issued pursuant to paragraph (1),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience investing in the securities and
obligations authorized by subdivisions (a) to (j), inclusive, or
subdivision (l) or (m) and with assets under management in excess of
five hundred million dollars ($500,000,000).
   (4) If investment is in shares issued pursuant to paragraph (2),
the company shall have met either of the following criteria:
   (A) Attained the highest ranking or the highest letter and
numerical rating provided by not less than two nationally recognized
statistical rating organizations.
   (B) Retained an investment adviser registered or exempt from
registration with the Securities and Exchange Commission with not
less than five years' experience managing money market mutual funds
with assets under management in excess of five hundred million
dollars ($500,000,000).
   (5) The purchase price of shares of beneficial interest purchased
pursuant to this subdivision shall not include any commission that
the companies may charge and shall not exceed 20 percent of the
agency's surplus money that may be invested pursuant to this section.
  However, no more than 10 percent of the agency's surplus funds may
be invested in shares of beneficial interest of any one mutual fund
pursuant to paragraph (1).
   (l) Notes, bonds, or other obligations which are at all times
secured by a valid first priority security interest in securities of
the types listed by Section 53651 as eligible securities for the
purpose of securing local agency deposits having a market value at
least equal to that required by Section 53652 for the purpose of
securing local agency deposits.  The securities serving as collateral
shall be placed by delivery or book entry into the custody of a
trust company or the trust department of a bank which is not
affiliated with the issuer of the secured obligation, and the
security interest shall be perfected in accordance with the
requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest
is granted.
   (m) Any mortgage passthrough security, collateralized mortgage
obligation, mortgage-backed or other pay-through bond, equipment
lease-backed certificate, consumer receivable passthrough
certificate, or consumer receivable-backed bond of a maximum of five
years maturity.  Securities eligible for investment under this
subdivision shall be issued by an issuer having an "A" or higher
rating for the issuer's debt as provided by a nationally recognized
rating service and rated in a rating category of "AA" or its
equivalent or better by a nationally recognized rating service.
Purchase of securities authorized by this subdivision may not exceed
20 percent of the agency's surplus money that may be invested
pursuant to this section.
  SEC. 3.  (a) Section 1.5 of this bill incorporates amendments to
Section 53601 of the Government Code proposed by both this bill and
AB 1679.  It shall only become operative if (1) both bills are
enacted and become effective on or before January 1, 2000, (2) each
bill amends Section 53601 of the Government Code, and (3) this bill
is enacted after SB 1679, in which case Section 1 of this bill shall
not become operative.
   (b) Section 2.5 of this bill incorporates amendments to Section
53635 of the Government Code proposed by both this bill and AB 1679.
It shall only become operative if (1) both bills are enacted and
become effective on or before January 1, 2000, (2) each bill amends
Section 53635 of the Government Code, and (3) this bill is enacted
after SB 1679, in which case Section 2 of this bill shall not become
operative.
